Systemic Risk Spillover Effects in SSE Star Market and A-Share Market—Analysis based on the Copula-TGARCH-CoVaR Model

Abstract

The linkage effect and risk contagion between financial submarkets are the focus of systemic financial risk, especially the risk spillover effects of financial submarkets under extreme conditions. In the paper, we select the data from April 2019 to the end of April 2020, including the end of December 2019 when the COVID-19 epidemic broke out till the domestic epidemic situation tends to be eased. Firstly, using the SSE 50 Index calculation method, we calculate the SSE Star Market Index by the data of 57 stocks of the SSE Star Mrket. Then, the Copula function is used to construct the dependency structure between the SSE Star Market and the A-share market. Finally, the CoVaR method is used to analyze the extreme risk spillover effect between the SSE Star Market and the A-share market. The test results show that there is a bidirectional risk spillover effect and a positive correlation between the returns of the SSE Star market Index and the SSE 50 Index. There is a significant difference in the spillover effects of upside risks and downside risks between the SSE Star market and A-share market. The upside and downside risks of the two markets rose at the beginning of the COVID-19 epidemic. As the epidemic is effectively controlled, the risk is reduced and stabilized significantly.